Dan and his team help individuals invest their hard earned money in the real estate industry. They are not custodians, they take their service to another level than a typical SDIRA custodian. We’ll hear exactly what they do, how they help clients, how they make money (one time fee + 15$ per month), and how they ultimately help their clients use their time how they choose. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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“We provide a simple paragraph to let people know they can use their retirement” – Dan Kryzanowski

Our fourth annual conference will be taking place February 20-22 in Keystone, CO. We’ll be covering the higher level topics that our audience has requested to hear.

TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Dan Kryzanowski. How are you doing, Dan?

Dan Kryzanowski: Great, Joe. Thanks for having me.

Joe Fairless: Well, my pleasure, and looking forward to our conversation. A little bit about Dan – he’s an active real estate investor and fundraiser. He’s the executive vice-president at Rocket Dollar. He invests in self-storage, multifamily and hard money residential loans. He’s based in Austin, Texas. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dan Kryzanowski: Absolutely. Quick background – I’m originally just a guy from Cold Country, North-East [unintelligible [00:01:57].16] probably as a lot of folks out here… Did the good school, the corporate thing with Merrill-Lynch and GE for a few years, and about a decade or so ago I realized working and going 9-to-5 for 40 years was not the way for success or happiness. So a few long stories short, I ended up learning about the self-directed space, tapping into the 401-K dollars that I’m sure a lot of folks do have from a past career life, and really making (I’d say) a very broad life for myself and my family here in Austin, Texas… Everything from real estate, to fintech, real estate tech, and kind of in the broad community building also.

Joe Fairless: So your website is Rocket Capital, but you’re the vice-president of Rocket Dollar. Same thing?

Dan Kryzanowski: There’s probably a typo in there…

Joe Fairless: Okay, Rocket Capital?

Dan Kryzanowski: It’s actually Rocket Dollar…

Joe Fairless: Okay, got it.

Dan Kryzanowski: …and what we do is we empower individuals – anybody here on this show – to tap into their retirement dollars to invest in private assets such as real estate. Another thing these accounts also do is – for folks that are self-employed, so for any of the realtors, the 1099 folks – you can actually defer up to $62,000 a year, times that by two if you’re married, to have a portfolio of real estate backed by your retirement dollars.

We do it all at a very simple, flat $15/month, a la Netflix.

Joe Fairless: Cool. So you’re a self-directed IRA custodian.

Dan Kryzanowski: Not exactly. It’s different. Listen, we personally have had these accounts, and I’ve raised X millions of dollars for some of the asset classes you touched on before… Where we differ, on the Rocket Dollar side, is in two main arenas. The first is that we’re not a custodian. We have partners, but what we’ve found is that, probably for a lot of the listeners out here, time and money are your two most valuable assets… So our products are checkbook control SD IRAs. What this means is that, say on the next deal if you’re taking friends and family money, you just wanna receive a check. You know these people, they know you, they like what you invest in. It really doesn’t make sense for you or them to be on the phone with some random third-party, just filling out their paperwork, for them just to give you their money. So we’ve completely eliminated the friction within our SD IRA product.

And then secondly, where I think the custodial world really doesn’t play into is on the solo 401-K side, also known as the individual 401-K. This is for anybody that is self-employed, where – as I referenced before – the much higher contributions. So what we wanted to do, being that less than 1% of (I’d even say) white-collar America, or folks with six-figure annual income out there – they’re still completely unaware that this self-directed world exists… So outside of folks getting bogged down in the technicalities – as we call it, the weird – we really want to promote the wonderful; just these quick, easy-to-use checkbook controlled self-directed accounts that could go towards either direct properties or syndicates.

Joe Fairless: So if you could put yourself in the shoes of a founder of a custodian company, what would they say the disadvantages are of a checkbook IRA?

Dan Kryzanowski: This is a great question. I sat on many panels where this was a fair question that collectively we wanted to discuss… And I think there’s multiple types of personas, but when it comes to investing, you can target two of them. I’d say one is folks like you or I, that are gonna do our diligence, we’re gonna make our decision and go forward. So we just wanna write that check and move on to what’s next.

If my mother was in this space, she probably would not mind being on the phone for an hour, asking what self-dealing is ten times over, and kind of going through the process of filling out that form, kind of a la 20th century, going into the bank, having that super-comfort that “Okay, now I’m moving stuff from A to B…” Which is fine; for some folks that’s the level of security they want… Or not as much security, but it’s just how they want to operate.

But what we’re finding out, for a lot of folks the best analogy I can give you is for people familiar with the health savings account, the government says “Great, you need surgery? Wonderful.” If you go for manicure/pedicure, you’re below board. [laughs] Same deal here, in the big self-directed world – as long as you don’t self-serve, basically, for yourself or your linear family. Everything else is in play.

Joe Fairless: Okay. Will you elaborate more on your business model? I’m kind of clear on it, but still a little fuzzy on how you make money and what it is that Rocker Dollar does.

Dan Kryzanowski: Sure. Well, there’s a few sets of folks listening today… So first, just for us as individuals, and some that may be familiar with the SD IRA space before… What we’ve done – I call it the Netflix model; what we’ve done, which is very different than signing up and having two pages of fees, and everything else, ours is very simple – it’s a one-time upfront $360, and this takes care of the administrative costs to set up… And then it’s a flat $15. This is regardless of asset size or number of transactions.

So in very good faith, whether you have a million, 100k, or even 10k, I feel if this is the account that you feel is good for you, for your diversification, then it’s something that you should engage in. And what we’ve seen – I’ve had some pilots retiring with a million dollars and they wanna buy five places in the Caymans. Our average account generally is in the 100k range, meaning the first tranche that comes over. This is the perfect amount, as you know, for a multifamily syndicate.

And then finally, folks that are just really dipping their feet in the water, maybe through crowdfunding or otherwise, that put in 10k or 25k. Either way, it’s still a flat $15/month, and there’s also no asset under management (fee). With a lot of the traditional custodian fees, and what folks are used to in the hedge fund land [unintelligible [00:07:31].29] mutual fund asset under management. We’ve completely eliminated that.

Now, the other side of the coin is for folks raising money it doesn’t cost you anything. And in addition to that, our engagement is going to be in your natural marketing. So what do I mean by that? Let’s say somebody out here, one of the folks that we may have met at a Michael Blank show, or maybe your show in February – first-time syndicator, raising a few hundred thousand… He/she is probably naturally gonna send an email blast to their hundred closest colleagues and say “Hey, I have a great deal. Are you interested?” All we provide is a very simple paragraph to copy-paste to say “Hey folks, in addition, you can use your retirement.”

So as we term it, “six figures in six minutes”, if you have 100 people that are gonna read your email, you’re probably gonna have a few folks that are gonna sign up and invest, and then from there, much like you, we host a podcast, “Rocket Your Dollar”, webinars, I speak at a lot of shows etc. So we incorporate you, meaning collectively the syndicator, the deal raiser, into our national marketing platform. And although we do not directly advise, we do (I think) share what we feel is the world of 21st century diversification.

Joe Fairless: I believe self-directed IRA custodians can’t push a particular investment. Are you able to push a particular investment?

Dan Kryzanowski: No, we cannot and we do not. Because what we do, especially now, as you get into the fourth quarter, with the Solo 401-K little-known technicalities that took benefit from this deferring 56k off your 1099 earnings, you need to open the Solo 401-K in the same calendar year. We get very busy in the fourth quarter every year, where your consultants who are self-employed, your realtors, folks that have a side gig are opening these accounts.

Now, with that, as I said, we’re just pushing for the simplicity to move to the checkbook control ASAP. With that, a lot of them ask “Wow, Dan, this is great. I wanna lower my tax burden. What do I invest in, or how do I approach this theme of 21st century diversification?” So what we do is we would list a broad offering – some of our friends like Matt Faircloth, others, we probably have well close to 300-500 partners at this point in real estate alone… So we give a sampling of the types of offerings that are out there, but no more than just a brief one-line introduction to the company. We do not get to the deal level, nor are we taking coins, nor do we claim that we’re match-making.

Joe Fairless: Cool. And by you partnering up — I don’t know if partnering up is the right word, but… By you being associated with those particular real estate investor, it benefits you and your business because then you can bring more people into the checkbook control self-directed IRAs that your company offers.

Dan Kryzanowski: Yes, that’s right. And part of this is — much like you, with the success you’ve had, in a certain stage of your life it’s part of a mission. I would say myself and the founding team – we’ve had tremendous success having these accounts personally for the past decade, and also raising millions for our endeavors. So we realize folks come from different walks of life, different assets, but at the very least we just wanna make folks aware, both as individuals, and then folks that are raising money.

Because when you take a step back, just on the IRA side alone, there’s ten trillion dollars out there, and it’s a comically huge number. It’s the only number I know that can go in the ring with our national debt… But only 100 billion are in these SD IRA accounts.

Joe Fairless: Ten trillion, compared to a hundred billion?

Dan Kryzanowski: Yeah, you’re looking at 1%… And these have been around since the ’70s, so… Who has these? Well, I’d say a few — this is a pretty astute crowd here, so some of our colleagues probably have these accounts. The PayPal mafia – they actually did them for Roth, so their dollar in is probably 10,000x on the back-end. The most famous example is Mitt Romney, when he was running for president. They were like “Hey, Mitt, I thought I can put 4k at the time into my Roth. I heard you have a million.” Mitt shrugs, and then of course the journalist gives the real number. It was actually 102 million. [laughter] You know, Mitt’s not paying on the back-end, so politics [unintelligible [00:11:28].14] but I’d say at least — if you have a hunch on something, be like Mitt and pay on that little seed, not the forest.

Joe Fairless: Ten trillion in retirement accounts and one billion in self-directed accounts?

Dan Kryzanowski: It’s ten trillion in the IRA. Think of it in laymen’s terms – this is your old 401-K, so the first/second job you worked at… And then in SD IRAs it’s the hundred billion. And then separate from this, I’d say two things – where most folks are working at currently, you cannot touch that money till you’re 59.5, or let’s round up – 60 years old. Some estimates say when you look at all the accounts that can’t yet be rolled over without penalty or fee, but our out there – and this range is also for military, TSPs etc. it can be as high as 30 trillion. And then separately, you also have X million in – depending on how you wanna source this – 20 to 50 million self-employed individuals that have the option to invest in a Solo 401-K.

So I think in terms of just awareness alone, it’s the tip of the iceberg. So where we’re excited at Rocket Dollar – and to your earlier question, where we differ – we’re a fintech company, we’re a real estate company. This was verified; we were at Money 2020, probably the top fintech show in the world last year, and out of 800 early-stage companies we came in second. We were actually in first place, and Shaquille O’Neal swatted us down to second, but I would say the VC’s and other folks in this space still deem that this was a good model. The main reason is that — you’ve gotta think, if you learned of maybe an old, stodgy sort of model many years ago, you may have opened one of these accounts for your personal purposes… But it’s not something that you’re gonna share with your buddies and brag about it on the golf course… Whereas my guess is here, even on this call, there’s probably two or three folks that have signed up literally within five minutes and are in the process of checking the box to e-sign a few things to start moving their money over.

So this is relatively revolutionary versus how the back-office, the process has gone before. Somebody on this call might be excited and maybe they’re turning around and investing with you or one of our other colleagues in the space. They’re much more likely then to refer this out, or maybe even talk about it on social media. I know a lot of folks [unintelligible [00:13:37].08] are promoting their new strategy. So we’re very happy to share the wealth in terms of folks taking credit of learning of this new opportunity.

Joe Fairless: Let’s talk about your investments… So you’re a hard money lender on over ten single-family rentals, and you’ve got debt and equity on a commuter property in Washington. What is a commuter property in Washington?

Dan Kryzanowski: It’s funny, I was in Seattle last week [unintelligible [00:14:01].13] which hopefully I’m pronouncing it correctly for my friends in the North-West, but… What it is, it’s your typical multifamily, but based on — obviously, Amazon is tremendously huge, and folks from all walks of life are commuting in there daily… But as the trend is going to smaller, cleaner, better, or folks are becoming widowed… You name it. there’s a group I’ve been investing with for a while out West, and they consistently have paid an A share of 10%. And their view is “Well, folks are gonna commute in, folks are gonna down-size. People want to be close to a commuting corridor.” There’s a lot of public transportation. And for folks that are really bullish on the investment, there’s a B share where you’re looking at probably a 16% to 22% IRR.

So for me, just kind of looking at the demographics, and obviously knowing that Amazon is probably not going anywhere tomorrow, this was for me a very easy and comfortable investment.

Joe Fairless: When you lend as a hard money lender, what are the terms that you seek?

Dan Kryzanowski: Like anything, especially here, it’s the person. Probably everybody had the school of hard knocks, real-world MBA, and have a loss; hopefully it was earlier in the career, for a small dollar, as mine was… It’s a lot. Like anything – the person, the track record. That said, if stuff really hit the fan, I would much rather have a sub-200k property outside of the triangle, in Raleigh, North Carolina, or close to a university, than maybe something where [unintelligible [00:15:19].10] Scranton, PA, that folks may be moving from.

So my criteria is obviously the heavy diligence… And I recognize the days of double-digit money – although there are some folks that are still offering, especially on the residential flip side, I still think 8% is very fair. I have a gentleman and he hasn’t missed a payment in 15 years, a world-class guy, actually 15 years now.

So I’m happy going full-circle. Why I like using my retirement dollars and having the checkbook control is he might say “Hey Dan, can you put another 10k or 15k in this deal, or another tranche on a current property?”, for me it’s a no-brainer. I cut a check or wire money, and both he and I are not stuck filling out some paperwork for an hour. So for me it’s been nice to set up that little piece of your portfolio that’s sitting in cash, to keep my money in use in this 8% plus range.

Joe Fairless: And do you do any points at closing?

Dan Kryzanowski: No, I keep this real simple, just for the ease and convenience. I do value time… This is what he’s had, and it’s pretty linear; as the market changes, and if it becomes more fruitful for everybody, he’ll go as high as 15%… As I said, at this stage in life I’m not gonna worry about something under 100 bps, particularly if it’s gonna be heavy negotiation with somebody I haven’t met before. And frankly, I still like multifamily, because I still you’re getting, in good faith, you are gonna get the double-digit return just on the debt side alone, not to include the equity… So if I have a piece of cash, I’d rather put it in multifamily than residential.

Joe Fairless: You’re also an equity investor in five bars/restaurants. Tell us about that.

Dan Kryzanowski: Yeah, well this is probably not as much for the returns…

Joe Fairless: It’s cool to talk about though.

Dan Kryzanowski: And I do mention this [unintelligible [00:17:00].12] to some of the younger folks out there, or folks with an interest, I would say in bars, restaurants or anything – this is especially before crowdfunding, and I’ll touch on why I think crowdfunding is okay, but… What is the in-kind benefit you’re getting out of it? Any folks, I’d say any of our single friends like you and I, that probably don’t have little kids at home…

Joe Fairless: I’ve got a kid.

Dan Kryzanowski: Likewise, so… Although he’s born on St. Patrick’s Day, I don’t have as many days in the bar as I used to… But half-price drinks, for folks especially that are entertaining and stuff, for half-price meals, especially if you can put in as little — think like of a syndicate or a crowdfund of $500, $1,000 etc. you can almost make that back really quickly, and even with heavier plays.

I know here in the Austin space, even in the bloody hot August, it’s at a premium. And maybe you save that $500 or $1,000 booking fee to get access to a room, and the staff, and everything else. We of course did it for fun, and we saw — we were in a bar on [unintelligible [00:17:52].26] on day one, we bought some dirt below a place in East Austin before. We have a restaurant that was highlighted in United Magazine three months after they launched… So I think we’re doing stuff. That said, from a margine perspective, it’s such a tight — so I’d say keep it on the budget. But if you are looking for return, there’s more than a fair number of crowdfunding sites out there that pay off of top-line revenue.

I think of the Steven Spielberg — I think the old E.T. analogy was that I think he got a dollar off every top-line ticket that came in before everybody else got their cut. So I’d say look for crowdfunding deals that do pay off of a super-pref initial top-line, and within the first year or two.

Joe Fairless: What’s the deal you’ve lost the most money on?

Dan Kryzanowski: Residential.

Joe Fairless: Which one?

Dan Kryzanowski: It was actually in Austin. It was on a hard money loan. I got creamed. I was paper-rich for a little bit. It was probably my ego more than anything else. “Well, look at all these fees, and everything…” I get asked a lot, what’s the one thing, and it’s “Never, ever pretend to play lawyer.” Maybe if you’re from the state, you’ve done multiple deals and everything else… Texas is such a pro business-friendly state to the N-th degree, and growing up in the North-East, I think there’s a little bit different of a mindset of how things operate.

Here folks are nice. I love it in Texas, I love it in Austin, but there’s still that pretty strict separation of church and state, or whatever you wanna call it, on the business side. I got crushed on something on paper that, for all intents and purposes, if it was on autopilot, it probably just should have sold and got my return. But as I said, school of hard knocks, so… I’m happy that this happened relatively early in my investing career.

Joe Fairless: How much did you lose?

Dan Kryzanowski: I ended up getting back, after some headaches, 70 cents on the dollar, but it was a five-figure loss.

Joe Fairless: Got it. And how did you get back some of the money?

Dan Kryzanowski: I lawyered up, like anything. You have to shift from talking personally to not. For those managers of a day job, the first time you probably have to put somebody on a PIP, or fire, or something. It’s the same sort of logic, you really have to do that. And as I said, I think some very — I think direct negotiation, reaching out to the other lien holders on this, which was some mixed results… So ultimately, I think it was the best, but as I said, I learned — I’d just say, for any of the Texas folks out here, and this may differ by state, but it’s not chronological. Common sense and I think other states’ laws say “Hey, as the money or the dates that things come in, this is gonna be the natural lien”, outside of the first-lien bank in Texas it is a Wild West, and there’s other really crazy laws on like what the 20th day means, versus 21st, even though it might be the same date… There’s just so much out there that the second something sniffs bad, you’d better file, and there’s different ways to do it.

It was well worth the lawyer cost, I’ll put it that way. I had somebody in the space, and without him I would have been toast.

Dan Kryzanowski: I call it A&B. Obviously [unintelligible [00:20:34].23] diligence, get some yield on something now. Don’t really wait for the development cycle if you can’t, and then have an added bonus on the back-end. The best dollar and cents, I could say, for every self-storage deal I invest in, we’re instantly cash-flowing; I’m instantly getting paid dividends. And I know – let’s just say a vanilla property is 500 units – that without diluting equity or asking for more money, they can build 200 units in the back, or maybe put [unintelligible [00:21:00].06] that’s gonna raise or probably double the value of the property.

So I would say if you can split your money from debt today, and equity tomorrow, on the same property, do it.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Dan Kryzanowski: Let’s party!

Joe Fairless: Alright, let’s do it. Let’s party, even better. I like that. You’re the first person that said that. I’m with you on that, let’s party. First, a quick word from our Best Ever partners.

Dan Kryzanowski: Storage, baby. Head to toe. And we’re still waiting to cash out.

Joe Fairless: What’s the best ever way you like to give back to the community?

Dan Kryzanowski: [unintelligible [00:22:29].20] it’s a leadership seminar for high school sophomores. I’ve been involved for almost the past 25 years, and I feel hopefully impacted the lives directly of thousands of high school sophomores, to empower them to enhance their leadership qualities.

Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing?

Dan Kryzanowski: Sure. Reach out to me directly. I won’t share my last name; we’d be on for ten minutes, trying to spell it, but… Just Dan@RocketDollar.com. And then as a courtesy to everybody, folks that may choose to sign up as individuals, enter “fairless19” for $100 off a Rocket Dollar account.

Joe Fairless: Cool. And I have RocketDollar.com, I will get on to Grant for putting that incorrectly at the beginning of this show. I’ll get on to him for you. [laughs]

Well, Dan, thank you for being on the show, talking about your business, talking about your personal investments and your philosophy. I really appreciate it. I hope you have a best ever day, and we’ll talk to you again soon.